This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Ladies and gentlemen, good day, and welcome to Full Truck Alliance's second quarter 2023 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mao Mao, head of investor relations. Please go ahead.
spk08: Thank you, operator. Please note that today's discussion will contain forward-looking statements relating to the company's future performance, which are intended to qualify for the safe harbor from liability as established by the U.S. Private Security Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and discussion. A general discussion of the risk factors that could affect FTA's business and financial results is included in certain filings of the company with SEC. The company does not undertake any obligation to update this following information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Joining us today on the call from FTA's senior management are Mr. Hui Zhang, our founder, chairman, and CEO, and Mr. Simon Tai, our CFO. Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this call will be available on FTA's investor relations website at ir.futurealliance.com. I will now turn the call over to our founder, chairman, and CEO, Mr. Zhang. Please go ahead.
spk06: Hello, everyone. Welcome to the second quarter of ManBang 2023. In the past quarter, we have continued to promote digitalization and automation in the industry. We have used the concept of users and value as the foundation. We have promoted business development, improved market share, and improved market leadership. We have achieved a series of important progress and achievements. In this quarter, we will continue to improve the penetration rate of the retail market, relying on the core demand of the number of users. Helping enterprises to reduce their sales and make the energy-intensive enterprises more competitive in logistics. At the same time, we will continue to expand the size of the users and increase the revenue level through continuous service delivery and efficient online and offline operations. All of these are due to the unique business model and excellent team execution power of Shenzhen's public logistics digitalization.
spk08: Hello everyone, thank you for joining us today on our second quarter 2023 earnings conference call. In the second quarter, we continued accelerating the industry's digital and intelligent evolution while maintaining our vision, user-centric, value-oriented, to fortify our business and boost our market share gains. These efforts have considerably paid off by solidifying our market leading position and giving us the ability to make a series of important advancements. During the quarter, our intense focus on the long-haul full-truck load business enabled us to further enhance this segment's market penetration. Centered around our core value proposition of better, faster, and more economical shipping, we assisted enterprises to reduce logistic costs and improve efficiency, which helped strengthen our users' competitive edge in logistics. Furthermore, we made significant developments in broadening our user base through our relentless products of great and effective online and offline operations, which drove our revenue growth to new levels. These critical accomplishments are attributed to our efforts in deeply cultivating the industry's digitalization, our unique business model, and our team's outstanding execution capabilities.
spk06: as well as direct customers have gained a strong growth. The total number of active customers has reached a new high in history, and has increased by 30.5%, reaching a scale of 2 million yuan. As the number of direct customers on our high-end cars continues to increase, the overall turnover rate level of orders continues to increase. In terms of product operation, we have launched a low-cost delivery process, standardized high-end car products, driver's license, and a more efficient driver's license and recommendation strategy, significantly increasing the number of customers, especially the experience of the moment and the age of the driver, driven us this quarter's travel orders increased by 44.5%, reaching 40.2 million orders. In terms of financial business, this quarter, our results are also very stable. Our second-tier revenue increased by 23.5%, reaching 20.6 billion yuan. The adjusted after-sales profit under the non-US accounting standard has increased by 170.8%, reaching 7.2 billion yuan, which is again exceeding the market expectations. Our users and order size As a result of our hard work and commitment, we achieved several new milestones in the second
spk08: In regard to our user skills, both our professional shipper users and direct shippers recorded stellar growth, with the average shipper MAU jumping to a historical high during the quarter, growing by 30.5% year-over-year to 2 million. The growing number of our high-quality direct shippers elevated our overall fulfillment rate. Additionally, we rolled out a series of new product functions, including a streamlined shipping process, standardized entrusted shipment services, a comprehensive trucker rating system, and more efficient order recommendation strategies for truckers, which significantly improved the shippers' experience, particularly direct shippers, as well as strengthened trucker stickiness, driving the number of distributed orders to 40.2 million, an increase of 44.5% year-over-year. On top of our outstanding operational highlights, we achieved strong growth momentum in both our top and bottom lines, which increased by 23.5% and 170.8% year-over-year, generating revenue of RMB 2,062 million and non-GAAP adjusted net income of RMB 722.7 million, respectively, surpassing market expectations once again. However, when looking at the millions of SMEs in China, and the trillion R&B logistic sector, our online penetration rate remains relatively low in terms of both user and order scale. Moving forward, along with our expanding market share gains in FTL, we expect to continue to reap additional benefits as we consistently improve both monetization and operational efficiency through digital and intelligent advancement.
spk06: In the next half of the year, we believe that Manbang will continue to play a special role in the industry and create value for users. Users are always the core of Manbang's business development. In the future, we will continue to adhere to the values of users, provide better products, operations and services, continuously optimize the various stages of service, and enhance user satisfaction. At the same time, we will continue to increase the investment in technology, to promote digital transformation and achieve more efficient operation and team management. In the future, we will continue to follow up on the changes in the business logistics market to innovate as a driving force to promote platform development. At the same time, we will pay close attention to the new opportunities of the platform and continue to explore effective use strategies. By constantly improving user coverage and input size, it will bring greater value to shareholders.
spk08: Looking ahead at the second half of the year, we firmly believe that by building on our strategic position as the leading one-stop free platform empowered by innovative technologies, we are advantageously situated to continue creating value for our users and the whole industry. With our users at the heart of FDA's growth, we remain committed to our user-oriented value proposition as we continually optimize our services on all fronts while simultaneously elevating user satisfaction by offering superior services and products that better cater to users' needs and preferences. In line with this commitment, we are stepping up our investment in technology to propel FTA's transition towards a more digitally empowered platform so that we can proficiently manage our teams and achieve a higher level of operational efficiency. Going forward, We are proactively responding to the changing market dynamics as we turbocharge our growth momentum across our platform through cutting-edge innovation. We will also keep an eye out for potential growth opportunities that fit FTA's one-stop business model, as well as more effective approaches to acquire and retain business. As we further expand our user base and revenue scale, we aim to build additional value for our different stakeholders.
spk06: Thank you, everyone.
spk08: Let me pass the call over to our CFO, Simon, who will share our operational progress and financial results for the quarter.
spk01: Thank you, Mr. John, and thank you to everyone for joining today. First, go over our highlights for the second quarter of 2023, followed by a brief overview of our operational and financial results before opening the call to questions. For the past quarter, we delivered an impressive year-on-year growth in fulfilled orders of 44.5%. Despite challenges of high temperatures, and extreme weather in June, there was no clear sign of a slowdown in order volume. Our average daily order volume during the quarter surged to a historical high, benefiting from improving due end user scale and activities, as well as enhanced matching efficiency. In addition, the recovery from the pandemic, combined with a series of new structural changes in the industry over the past two years, contributed to a larger number of users meeting their shipping needs through online platforms, which is faster, safer, and more convenient. Building on this momentum, we continue to expand our market share in the quarter. With the industry continuing to normalize, our average fulfillment rate grew by roughly 10 percentage points year over year and 2 percentage points quarter over quarter in the second quarter to It is worth mentioning that the average fulfillment rate of our 688 members exceeded 50% this quarter. This continued improvement in matching efficiency was driven by both sustained growth in due end user scale and the ongoing optimization of shipper composition. We also successfully improved our products by strategically integrating technologies and using algorithms along with strengthening our efficiency and accuracy of freight machines. Looking at the transaction types, with rising demand from direct shippers, the proportion of non-negotiation-based transactions, such as tap-and-go and entrusted shipment models, continue to increase, reflecting our platform's pricing power and users' enhanced reliance. In regard to our users, we have made remarkable strides in broadening our user base with our average shipper miles exceeded 2 million for the first time in history, increasing by 30.5% year over year. The increase was mainly from 688 members and non-member shippers, which were up 25% and 40% respectively, the majority of which are direct shippers. The continued growth of shipper miles year-to-date is mainly driven by the increasing stickiness and activity of existing users, as well as effective new user acquisition strategies. During the second quarter, as the supply of truckers increased, our average trucker miles responding to orders increased quarter over quarter, with 3.78 million active truckers fulfilling orders through STA over the past 12 months. This shows that more truckers are choosing our platform for finding cargo rather than relying on offline models of trading. Meanwhile, our 12 months rolling retention rate of shipper members and next month's retention of truckers who responded to orders remain stable quarter over quarter, once again confirming our platform's high user stickiness. Going forward, we'll continue to focus on the livelihoods of truckers and shippers, as well as local industry developments across different regions nationwide for further market penetration by verticals. We'll also explore and capitalize on our platform's benefits in addition to strengthening our connection with the real economy and SMEs. By refining our user composition and increasing the fulfillment rate and user retention, We're successfully building a thriving platform ecosystem that generates long-term value. As Mr. Jones just commented, we have built our foundation by creating value for shippers and truckers. Since our inception, we have been committed to cracking down on maliciously low-priced shipments and maintaining a fair and normal transaction order in the markets. Recently, the platform has launched a targeted product that utilizes big data and algorithms to predict, identify, analyze, and automatically judge low-priced offers. This has significantly improved truckers' efficiency in fighting cargo and enabled shippers to dispatch their goods faster. In addition to addressing control and governance of malicious low prices and other behaviors, We have also carried out a series of measures on the product functions and are actively guiding the freight rate. For example, when a shipper's bid is low, the user's page will automatically remind the shipper to increase the price before placing an order. It will also send a reminder of the price increase in case there's no transaction within a certain period of time. In order to help some of the new shippers offer reasonable prices, The platform will also display around 90 days of similar sources of historical transaction prices for the shipper's reference. Although currently there is an oversupply of truckers, we still thrive to find a dynamic balance between truckers and shippers through the combination of providing price range control and pricing guidance. This approach is gradually addressing the industry's pain point of low freight rates. Before going over the quarter's financial results, I will quickly review the progress of our transaction commission model. We're very delighted to report revenue from online transaction service surged 59.6% to RMB $565.2 million. This is driven by our solid increase in the number of fulfilled orders and commission per transaction. With our user base and order volume continue to grow, we expanded our commission model's coverage. In the second quarter, around 59% of the transactions fulfilled through us were closed under our commission model as compared with roughly 53% a year ago, generating an average commission per transaction of around RMB 23.4. As we further optimize revenue streams, transaction commission will remain a major growth driver of our revenue. Now I'd like to provide a brief overview of our 2023 second quarter financial results. Our total net revenues in the second quarter were RMB $2.62 billion, representing an increase of 23.5% year-over-year. This increase in revenue was primarily attributable to an increase in revenues from freight matching services. Revenues from freight matching services, including service fee from freight brokerage models, membership fees from listing models, and commissions from online transaction services, or RMB, 1,731.2 million in the second quarter, representing an increase of 22.8% year-over-year. primarily due to an increase in revenue from freight brokerage service as well as continued growth in transaction commissions. Our revenue from freight brokerage service in the second quarter were RMB 948.9 million, up 11.6% year-over-year, primarily attributable to continued growth in freight volume as a result of expanded user coverage. Our revenues from freight listing service in the second quarter were RMB 227.1 million, up 7.3% year-over-year, primarily due to an increase in total paying members. Revenues from transaction commissions amounted to RMB 555.2 million in the second quarter, up 59.6% year-over-year, primarily driven by an increase in order volume as well as and improvement in take rate. Our revenues from value added services in the second quarter were RMB $330.8 million, up 27% year-over-year, mainly attributable to an increase in revenues from credit solutions and other value added services. Cost of revenues in the second quarter was RMB $975.3 million, compared with the RMB 925.9 million in the same period last year. The increase was primarily due to an increase in VAT-related tax surcharges and other tax costs, net of tax refunds from government authorities. These tax-related costs, net of refunds, totaled RMB 879.3 million, representing an increase of 4% year-over-year, primarily due to a continued increase in transaction activities involving our freight brokerage service. Sales and marketing expenses in the second quarter were RMB 281.8 million compared with RMB 196.2 million in the same period last year. The increase was primarily due to an increase in advertising and marketing expenses for user acquisitions. General and administrative expenses in the second quarter were RMB 201.7 million compared with RMB 344.8 million in the same period last year. The decrease was primarily due to a lower share-based compensation expenses. R&D expenses in the quarter were RMB 223.7 million compared with RMB 216.4 million in the same period last year. The increase was primarily due to higher salary and benefits expenses. Our income from operations in the second quarter was RMB $333.8 million compared with a loss of $46.4 million in the same period last year. Net income in the quarter was RMB $609 million compared with RMB $12.7 million in the same period last year. Under non-GAAP measures, our adjusted operating income in the second quarter was RMB 450.7 million, an increase of 113.4% from RMB 211.3 million in the same period last year. Our adjusted net income in the second quarter was RMB 722.7 million, an increase of 170.8% from RMB 266.9 million in the same period last year. Basic and diluted net income per ADS were RMB 0.57 in the second quarter compared with basic and diluted net income per ADS of RMB 0.01 in the same period last year. Our non-GAAP adjusted basic and diluted net income per ADS were RMB 0.68 in the second quarter compared with RMB 0.25 in the same period last year. As of June 30th, the company had cash and cash equivalent, restricted cash, short-term investment and long-term investment of RMB 27.4 billion in total compared with RMB 26.3 billion as of December 31st last year. In the second quarter of 2023, net cash provided by operating activities was RMB 707.7 million. For our business outlook for the third quarter of this year, we expect our total revenue to be between 2.16 billion and RMB 2.2 billion, representing a year-over-year growth rate of approximately 19.2% to 21.6%. This forecast reflect our current and preliminary views on the market and operational conditions, which are subject to change and cannot be predicted with reasonable accuracy as of the date hereof. Lastly, I'd like to provide a brief update on our share repurchase progress. From May 22nd to August 22nd, we have repurchased approximately 13.8 million ADS shares, amounting to approximately 87 million US dollars. Since the announcement of our repurchase program, we have repurchased a total of around 19.4 million ADS shares from the open market with a total value of approximately $124 million. In the future, we'll continue to utilize prudent repurchase methods to reward our shareholders. That concludes our prepared remarks. We would now like to open the call to Q&A. Operator, please go ahead.
spk00: Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Today's first question comes from Ronald Kyung with Goldman Sachs. Please go ahead.
spk03: Thank you, management. I want to ask that the fulfillment order growth was very strong at 44.5%. and at a rate that has been much faster than the overall freight market. So can you share the reasons behind and how should we anticipate for other growth into the third quarter? Thank you.
spk01: Thank you, Ronald. As you know, we're a leading digital freight platform. We continue to gain market share in the food truck load market since the beginning of the year. driving the rapid growth of our freight volume, including the low base effect from last year's lockdown in the eastern part of China and the impact of the Chinese New Year in the first quarter. We see the main reason for the substantial year-over-year and quarter-over-quarter growth in order volume in the second quarter as follows. The first, the fact that we further enhanced our transportation supply was critical in driving the growth in other volumes in the second quarter. In addition to the removal of last year's travel restrictions, our operation marketing and product team worked extensively on a series of operational activities. We also refined the rules within the trucker rating system and introduced incentives to enhance the engagement and fulfillment rate for truckers. These efforts ensure the transportation capacity and quality resulting in a continuous increase in order volume. The second point I want to make is the extension of our user base. Our average ship amounts, as I said, exceeded 2 million for the first time in history. This is a significant milestone for us. And this achievement was driven by implementing two key strategies. The first is on user acquisition through targeted promotional campaigns to strengthen our brand awareness. We also continue to gain traction with new users, especially high-quality direct shippers. As a result, we saw a continued increase in order volume and our market share further expanded. The second point for this I want to make is on the product experience improvement. We remain focused on refining operations and providing customized services, which are centered around our core values of speed, quality, and cost effectiveness, and further enhancing shippers' recognition and dependence on our platform. These two activities resulted in the increasing frequency and activity of our shippers. Both the activity and shipping frequency of shippers of various types reached a new level compared with the previous quarter. Looking ahead to The coming quarter, we maintain an optimistic outlook for the growth in alder volume. Despite the potential impact of extreme weather conditions, such as typhoons and heavy rainfalls, we noted that the effects are limited in June in terms of duration, and the provinces affected in August contribute relatively less to the platform's overall alder volume. So we're confident that through ongoing enhancement in use of operations and services, we'll continue to improve our market share and sustain our position as a market leader.
spk03: Thank you, Simon.
spk00: Thank you. And our next question comes from Eddie Wong with Morgan Stanley. Please go ahead.
spk04: Mr. Chairman, Mr. Simon, hello. Thank you for accepting my proposal and congratulating me on the very strong performance Thank you, management, for taking my question. In the second quarter, the fulfillment rate has exceeded 30% for the first time, with significant year-over-year and quarter-over-quarter growth. What are the main driving factors behind this growth, and how do you expect the trend in the fulfillment in the future? Thank you.
spk01: Thank you, Eddie. First, the improvement in the fulfillment rate is primarily attributed to the enhancement of our transportation capacity. As mentioned earlier, we have significantly alleviated the shortage of truckers as the pandemic is behind us. This leads to a comprehensive recovery in the matching efficiency. Building on this momentum, we have implemented various operational strategies, including the trucker rating system introduced in the first quarter to increase the engagement and stickiness of high-quality truckers, consequently raising the overall fulfillment rate. In the second quarter, the daily active truckers seeking to take orders increased at a rate of high teams year over year and reached over 1 million. This is the daily active trucker, which provides the platform with ample quality carrier capacity. The second point I want to make is the enhancement in fulfillment rate also resulted from ongoing optimization of our shipper composition. In the past quarter, we continue to attract a substantial number of high-quality direct shippers to our platform. Among the approximately 2 million shipper MAUs, around 1.7 million of them are low and medium frequency 688 members and non-member shippers. The average freeman rate for both these shippers exceeded 50% in the second quarter, and most of them are direct shippers who have an inherent tendency towards high fulfillment rates, which contributed to the overall fulfillment rate improvement. Looking ahead, we anticipate a gradual increase in fulfillment rate, primarily driven by the growth of direct shippers. While we might encounter some challenges from extreme weather, such as high temperatures and heavy rainfalls in the third quarter, We'll continue to optimize our operational strategies, strengthen our transportation capacity management, and provide incentives and support to high-quality truckers so that we can maintain our efficient and high-quality supply. And furthermore, we will remain focused on constant user-oriented products and services to increase users' satisfaction and engagement. Thank you.
spk00: Thank you. And our next question today comes from Charlie Chen at China Renaissance. Please go ahead.
spk02: Thank you. Can you please provide some update on the progress of SHPR membership in the second quarter, which has very robust growth? And what are the main reasons for this growth? And also, how do we envision the growth of member users and membership fee revenue in the future? Thank you.
spk01: Thank you, Charlie. Since our new user registration only resumed last year, we have been consistently attracting more shipper users, particularly those direct shippers, to join our platform. Through a combination of online branding efforts, multi-channel promotions, and offline campaigns, we have successfully converted a portion of these accumulated new users into new shipper members. Simultaneously, our existing shipper members showed high retention rates and stickiness, with 12-month retention rates surpassing 80% this year. For us, the primary advantage of the shipper membership mechanism lies in enhancing user stickiness and engagement, which in turn attracts more truckers and fuels healthy growth in both user members and order volume. Monetization through membership fees comes as a secondary benefit. The majority of our new shipper users are direct clients characterized by their high engagement, low frequency, and higher service expectations compared to professional shippers. As a result, our membership conversion strategy focuses on optimizing user experience and providing value-added services that appeal to direct clients, such as priority matching, expedited shipping, and discounts on freight insurance to incentivize new shipper users to become members. In the future, we will continue to refine our user acquisition and membership conversion strategies. We believe that China's extensive community of small and medium-sized enterprises will contribute to our potential user pool and thus further increasing the number of SHCPR members. From a monetization standpoint, there's still room for improvement in membership conversion rates, taking into account the impact of new user subsidies. We anticipate a single-digit year-over-year increase in membership fee revenue for this year.
spk00: Thank you. Our next question today comes from Brian Gong at Citigroup. Please go ahead.
spk05: Hi, Mr. Zhang. Good evening. Thank you for accepting my question. First of all, congratulations on your performance. I have a question about the interest rate. I see that the interest rate of the second quarter is performing very well, from 44.6% to 53% in the same period last year. There is also a significant increase in the return. May I ask what is the main reason behind the improvement of the interest rate? Thank you. I will translate it myself. I have a very quick question on our margin. Our gross margin for the second quarter improved significantly. are rising to 53% from 45% a year ago and also from 50% in the first quarter this year. Could you please elaborate more on the main drivers behind the GDP margin improvement? Thank you.
spk01: Thank you, Brian. On a year-over-year basis, the improvement in our gross margin primarily stems from the ongoing optimization of our revenue structure. Notably, the contribution from commission-based and value-added basis services to total revenue continued to rise, and these two segments tend to have much higher gross margin compared to that of freight brokerage business, and driving the improvement in the company's overall gross margin. In the second quarter, after excluding the impact of freight brokerage business, the approximate gross margin increased to 85.6% compared with 84.4% in the same period last year. On a quarter-over-quarter basis, the change in gross margin is mainly impacted by the time and difference in tax rebates, and due to variations in the processing time of tax procedures and different tax rebate policies in various regions, this factor could lead to short-term fluctuations in the gross margin. However, it is important to clarify that the timing difference in tax rebates does not affect the company's overall profitability. It simply causes slight variations in the gross margin within a certain timeframe.
spk05: Thank you. That's very helpful.
spk00: Thank you. And our next question comes from Jilu Li with CICC. Please go ahead.
spk07: Thank you, Mr. Zhang. First of all, congratulations to the company for achieving its initial performance in a relatively poor environment. I mainly want to ask a question about the information that I have seen recently. How do you see the recent releases of several platforms, including the highest collection amount or membership fee? These announcements may be Thanks for taking my question. I have one question about the recent announcement from several free platform companies about lowering the maximum commission fees or membership fees on business. What are your views on the impact of this announcement? Thank you.
spk01: Thank you. Throughout our whole operation history, we have maintained a very prudent approach and attitude towards commission rates. And our current commission rate is still low and far from reaching any limits. The recent regulatory guidelines issued by authorities like Ministry of Transportation can be seen as more of a positive development for our platform. Instead of suppressing commission fees, These regulations are intended to encourage platforms to adopt a more transparent and reasonable practice in their commission structures. We welcome these regulatory measures and view them as a positive step towards providing a stable and sustainable operating environment, enabling us to operate with greater confidence in the future. In regards of our business, The recent adjustments to the maximum commission fee have not had a negative impact on the platform. For instance, the upper limit of commission for our entrusted shipment model has been lowered by roughly 10% from the original RMB 199 per order, yet it still remains significantly higher than the actual average commission per order we charge at the moment. In the future, we will introduce various types of products and value-added services for shippers, thereby diversifying our revenue streams. We believe that by optimizing fee composition and expanding service offerings, the platform economy will embrace more opportunities as well as creating more room for growth. Additionally, our ecosystem and strategic positioning in the industry provide us with inherent competitive advantages. We'll continue to strengthen the development of our ecosystem, introduce innovative services and solutions to bring greater value to our users, and this approach will further drive the development and advancement of the freight transportation industry as a whole.
spk00: Thank you. And ladies and gentlemen, that concludes the question and answer session. I'd like to turn the conference back over to Mao Mao for any closing remarks.
spk08: Thank you. Thank you, Operator, and thank you, everyone, for joining us today. If you have any further questions, please feel free to contact us at 4Chalk Alliance directly or TPG Investor Relations. Our contact information for IR in both China and the U.S. can be found in today's press release. Have a great day.
spk00: thank you ladies and gentlemen this concludes today's conference call you may now disconnect your lines and have a wonderful day
Disclaimer